Private equity firms snapped up portfolios of defaulted real estate debt earlier this decade, in a bid to take ownership of European commercial property at bargain prices. Now, those firms are selling assets to a new generation of owner and the latest entrant to the European property lending space aims to provide those buyers with debt capital.
David Arzi, who previously led Marathon Asset Management’s US and European real estate businesses, is chief executive of newly launched Starz Real Estate. The firm is backed by Sightway Capital, a private equity firm owned by investment manager Two Sigma.
Initially, the London-based platform has capacity for €500 million of lending, although Arzi tells Real Estate Capital the aim is to ratchet up to provide €1 billion of debt a year. Eventually, raising third-party capital will also be considered.
During his time at Marathon, Arzi invested opportunistically in Europe when vast quantities of real estate asserts were moving from beleaguered commercial banks onto the balance sheets of private equity funds.
“We’re aiming to take advantage of the next wave of activity; the transfer of assets from private equity to more natural owners of real estate,” he explains.
That, he continues, might mean providing finance to local property companies or developers, family offices or even smaller scale private equity funds, as they aim to buy mid-market assets which do not necessarily fit the profile which traditional banks are willing to finance.
As the latest private equity entrant into an increasingly busy European real estate lending space, Sightway’s rationale is the retrenchment of banks after the financial crisis last left many credit-worthy borrowers without traditional financing options. Sightway investment partner Brandon Johnson argued underlying real estate market fundamentals support the demand for financing, creating a need to provide debt to “underserved borrowers”.
Starz, according to Arzi, will be a “high-service lender which can fund mid-market sponsors and close loans quickly, as an alternative to them sourcing a loan from a bank, which is a privilege”.
The platform’s aim is to provide loans of between €10 million and €50 million, with loan-to-value ratios of up to 75 percent. Sponsors can expect to pay between 4 percent and 5 percent on a floating rate basis. Financing terms will seek to replicate traditional bank lending tenors, with three- to five-year loans on offer.
Arzi is joined at the firm by two former Deutsche Bank real estate bankers. Heather Jones, chief operating officer, previously had the same title in Deutsche’s European commercial real estate lending business, while Limor Shilo, head of loan origination, was previously director of debt origination in the same business, where she originated loans across development, transitional offices, retail, hospitality and non-performing loans.
The UK is likely to be the firm’s primary focus, with Arzi expecting it to account for two-thirds of lending in the near-term, although Starz will also aim to lend to property located across Western European cities.
The firm’s challenge is to position itself within a market in which a growing number of organisations are aiming to provide debt in situations where bank finance remains constrained.